HESKETT

9/20/2004

While we must look for and create alternatives, we do not need to lose competitive advantage in doing so. In fact, the first countries to successfully develop new layers of infrastructure to support and actively use a new fuel will benefit tremendously. As an example, look at Sweden's IKEA which approaches business in a sustainable fashion and has grown through this approach.

K. I.
Engineer
U.S Civil Service

I would probably start by addressing this question: "What should be the technology with the highest fuel economy and lowest (zero) emissions?" Thinking from this point of view, it is easy to see that petroleum-derived fuels will not longer work for whatever this "breakthrough technology" is going to be. History tells us that the "fuel enables the technology." We probably can say that future technologies (automotive, industrial, etc.) are going to require ultrahigh-purity fuels, ultrahigh quality, and ultra-controlled specifications. This is very difficult to attain by using petroleum. So, I think we will NOT see "cheap oil" deplete. In fact, as emerging, non-oil-dependent technologies develop, the demand and the price will go lower. Future energy markets could be diversified with regional differences depending on localization, population, and environmental conditions, although the target would be the same: high efficiency and low energy consumption.

Peter Perez
Research Assistant (Fuel Science)
The Pennsylvania State University

The age of oil is a small percentage of the human age. It seems to me that the best we have now was a product of civilizations without oil ... from the Ten Commandments to democracy. Oil provided good things, but I don't think we will be worse off without it. In fact, we might end up reclaiming the rivers, the forests, and even some lost social decorum by finding an alternative to oil.

Anonymous

Given the current situation and the relative alignment of the rest of the economy, there is not enough "pain" to warrant any serious action or leadership role by any political body. It's another example of the tragedy of the commons: The result is predictable

If we imagine looking back from the end of this present interlude of low-cost energy, what will we wish we had done differently now? In the U.S. our number one regret will be that our wealth continued to go into building suburbs—an astoundingly poor choice from an energy perspective. Whatever we can do now to encourage high-quality and high-density urban living should be done. We can look to Portland, Oregon for one example of how this was done.

William Devanney
Consultant

This issue should be tackled on two fronts: the domestic front and the international front.
For the domestic front, the country should create an efficient internal mass transportation system that will link households with places of work, markets, shops, and schools, at low cost.

For the international front, efforts should be made to develop alternative cheap fuel by seeking cooperation among countries, joint research, sharing information, and development costs so that the entire world can be a better place to live.

John Thomas
Director - Operations
FMB

The issue is not about how to secure future sources of oil so that you can continue to burn it with abandon.

You Americans consume more energy per head than the rest of the world. You are the first people who should set an example by reducing your consumption. Here are a few suggestions:

Curb and stop producing your gas-guzzling SUVs and introduce a truly penalizing tax for their purchase and use.

Invest the excess proceeds in efficient public transportation into and between urban centers.

Buy and use bicycles.

Walk off your fat.

Eat less (less energy wasted in producing food that you don't need).

Michael Rivers

The challenge is that we have to be bold enough to admit that the current industry structure is—and will continue to—preclude a smooth transition motivated by market forces. What we need is an energy development program on the order of NASA's quest for the moon.

Charlie Langston
CFO
Talmage Solar Engineering, Inc.

Our future energy needs will increasingly be constrained by technological innovation and available energy sources. The spike in oil prices, if nothing else, has fostered a sense of entrepreneurship and opportunity in the renewable energy sectors. Not only are there increasingly attractive business models for things like solar and hydro energy, but also other energy models, including landfill gas and geothermal sources, are proving to be stable, predictable, and profitable alternatives.

Clearly, many of these business models rely on government support and will probably need to do so in the foreseeable future, unless there is a huge spike in oil, gas, and coal prices, or another round of technological innovation that better harvests these renewable alternatives.

However, it is important to note that high prices for oil are not only attributable to the so-called "low hanging fruit" of oil that is easily harvested. Rather, there is a huge demand for energy in general, as economies have prospered in Asia, in particular, China. The future economic growth in China, India, and other nations will create more cars and, more generally, increased energy usage. These scenarios dictate that the renewable business model be re-evaluated and, hopefully, incorporated into future energy planning.

Marc Schoenen
MBA student
Harvard Business School

For us in Nigeria, we live in an oil producing nation and it is our only hope that the high oil revenues will be saved for a rainy day when our oil wells dry up, or will at least be invested in an infrastructure that will make our country attractive for foreign investment.

James Magaji
Managing Director
Jimmyken Ventures Ltd.

Cheap natural gas and oil underlie not only economic growth, but everything from the pharmaceutical industry to the viability of large scale industrial agriculture — the 'Green Revolution.' Renewable energy technologies help to prevent us from sliding back into the pre-industrial era. However, under close scrutiny, none of these technologies seem capable of delivering enough energy for the continuation of the American Way of Life. The hydrogen economy is a case in point. Perhaps the most important responses to these crises will not be technological, but initiatives such as back to the land movements and a re-localization of economies.

Adam Fenderson
Editor
EnergyBulletin.net

I can count almost twenty methods of creating electricity without burning something— every one of which is essentially an infinite resource that does not pollute or deprive future generations of oil. Oil could then be used for a profitable purpose. Those methods are: Solar; Wind; Wave; Algae; Ethanol; Bacteria; Osmosis; Biomass; Water Currents; Methanol; Efficiency; Geothermal; Hydroelectric; Nuclear Fusion; Ocean Thermal; Waste Remediation; Atmospheric Thermal; and Orbital Magnetospherics (dangling wires in orbit that generate electricity). Using these methods to create energy in a decentralized fashion can be healthier and more economical, especially as oil prices start to climb. There will never be a guarantee that we are free of geopolitical problems, but at least the struggle for energy resources can be one issue taken out of the equation. These methods also make the possibility of regional blackouts more remote.

The above methods for generating electricity can also be used to create hydrogen. With respect to wind, low electrical demand, say at night, often coincides with high winds, when the electricity generated would be otherwise wasted.

I think that the best method to remediate our world is education about the possibilities. I have rarely found anyone who is not almost fascinated by the possibilities of alternative energy. It is certainly a vote catcher, but there is so much misleading material from governments, the media, corporations, and special interests. It's interesting that the underlying improved energy paradigm would be very good for society but not a good model for particular companies to get rich. The productivity impact on the whole community would be impressive, though, and permit a more democratic development of productivity.

Luckily, technology has made the market perhaps the best means by which adoption of such technologies will arrive. Already the numbers of wind farms, green megawatts, hydrogen stations, installed fuel cells, and any number of other projects are growing at rates previously only associated with telecoms or chip technology. We have a long way to go, but the market forces will drive us there as surely as if there were no political leadership at all!

Mark Townsend Cox
CEO
New Energy Fund LP

The real test will be how other developing nations like China and India can manage their dependence on oil as their economies grow and the demand for better infrastructure continues. In the short term, it is difficult to contain dependency on oil.

Throughout history, mankind and the economy have functioned perfectly well without any oil, barring the last hundred years. Once the oil runs out or becomes too expensive to buy, future generations will adjust themselves out of necessity. The world is a very resilient place. Globalization has increased the need to consume oil, and globalization will reduce the need for oil, too.

Suman Das

It is postponing the inevitable to not address these issues now. The oil companies need to switch to the manufacture of alternative fuels, or face being left behind by the next wave of fearless entrepreneurs who are willing to take the ball and run with it.

Ronald Bourdages
CEO
YPO International

1. Given the relative balance of current supply and demand, I believe the U.S. and Chinese government could partner with OPEC to create a relatively stable, somewhat inflated price of oil, say $35-$40, and stabilize the supply by using the U.S. strategic petroleum reserve. This will encourage exploration.

2. Push for ethanol-based fuels. First, as a blend with gasoline (10 percent), and second, as pure ethanol fuel with new engines. Mandate it through Congress.

3. Subsidize promising technologies with tax credits and research grants to encourage solar and wind power.

Robert Sheperd

I am fifty-nine years old and have lived through the oil embargo, energy tax credits, etc. I used all tax credits possible to reinstall insulation into our house and fine-tune our oil-burning furnace. We bought a new house in 1989 that has gas-forced air heating and cooling. It was much less costly than using oil.

Now the price of natural gas is going up every year and geothermal seems like the next big thing. I know it works in my state of North Dakota, because I belong to a congregation which built a new church in 2000 with geothermal heating and cooling (and with no back up). I am amazed that the church stays warm even at 15° below zero Fahrenheit, and comfortable at 95° above with high humidity. But if geothermal is the future system of choice for building energy conservation, it still needs electricity for pumps, compressors, etc.

That means higher electrical consumption, which can lead to more use of wind energy. The problem with wind energy is having enough large wind farms connected to the national grid in order to provide a dependable level of power all the time.

The point is that the wind is always blowing somewhere, so let's take advantage of that fact, get some federal laws enacted for high power transmission lines, and start saving coal, natural gas, and oil. As for cars, I think some sort of hydrogen hybrid might be the answer. These new gas-electric hybrids are okay, but has anyone thought of what to do with the batteries when they wear out? Or how much it would cost to replace them? Again, tax incentives would be the answer, mixed with a higher federal tax on gasoline.

Anonymous

There are various options for addressing the end of cheap oil, including utilizing market forces, government incentives, and trans-national cooperatives. A far more bleak picture for the end of cheap oil is portrayed in Richard Heinberg's The Party's Over: Oil, War, and the Fate of Industrial Societies. There, Heinberg makes a fairly compelling case that cheap oil drives all aspects of the global economy and, in particular, our methods for producing and distributing food. An end to cheap oil would very well mean an end to cheap food worldwide. And with 6.5 billion people to feed, I am reminded of a somewhat frightening quote that I'll likely garble: "Throughout history, when humans are left between starvation and raiding, they raid."

Jeremy Stieglitz
Manager
Cisco Systems

I think the most heavily "socially advertised" message in schools, religious institutions, and governments should be this one: that we all seek ways to reduce our footprint on and in the world. That mindset would surely create sustainability geniuses who can help our planet and its inhabitants. Personally, I feel so ignorant of what exactly to do beyond the simple things of everyday life dealing with food, travel, exercise, etc. How can we have nuclear energy and not know what to do with the used end products? Or with garbage? Where are the real leaders coming out of the universities?

Anonymous

Perhaps we should let the oil prices go up. Then fewer people could afford to drive and there might be more people who would start looking at mass transportation or maybe even try something good for themselves, such as walking or biking to work or to the store. Exercise and use less oil. Maybe this would also stop the rising level of obesity in America, for it would lower health costs (because people would be healthier), and conserve our natural resources.

Anonymous

In spite of the fact that we have seen the energy crisis as a zero-sum dilemma for thirty years, creative individuals continue to find ways to expand the current supply and better harness new oil discoveries. We are continuously approaching a more energy-constrained future, but creativity has kept up with the pace of growth in demand.

That said, as the world leader of energy consumption, the United States has a moral obligation to share its wealth of knowledge with developing nations. It is the responsibility of corporations and governments alike to share knowledge and to work to educate developing nations. As the world increases its intellectual resources, the probability of finding new answers to current problems grows exponentially. While government regulation may help in the education process, it is not sufficient to establish effective change because it often ignores self-interest. It is up to corporations to exercise their interests in educating developing nations about consumption, pollution, and efficiency. As education in a developing nation improves, so does opportunity.

ExxonMobil has recently invested billions of dollars into Angola's education systems and infrastructure. In return, newly trained Angolan engineers and technicians are loyal to ExxonMobil as an employer, and the cost of wages is a fraction of similarly trained resources from highly developed nations. The cycle continues from education to improved wages to buying power to new markets for international goods and services.

It is too idealistic to expect to create an instantaneous "equality" of resources. What may be perceived as the "no action" approach is actually a sustainable equalization of opportunity based on self-interest. In the long run, it is good for Americans to feel constraint in our gas tanks. We have been driving gas guzzlers for too long, and need a stronger incentive to apply the knowledge we've learned. Let the market drive the price. It is time to pay the piper ... and the pipeline.

Joseph Butler
Upstream Account Management
Exxon Mobil Corporation

I would prefer to see a radical yet safer alternative, such as 1) setting up and providing incentives for gasoline-free zones across the globe, and 2) establishing a global organization equipped with a global fund pooled from all member countries to further the development of alternative energy.

In the near term, though, the rich and powerful must converge and arrive at a consensus to tackle the political instability of the oil-rich nations. This must definitely be on top of the agenda of every oil-reliant economy. The problems caused by energy scarcity have to be tackled by every member of the global community and not just by a few enlightened nations.

Ravi Sinivas
Market Analyst
Reuters

Here's another solution: Grow more hemp.

1) It can be grown in most parts of the world.
2) It would act as a cash crop for many poorer countries and poorer rural dwellers.
3) It is capable of replacing oil as a versatile energy source.
4) It is a renewable source of energy.

Colm Kavanagh

Developed countries should take the lead in the use of alternative sources of energy. Otherwise the time will come when the price of oil skyrockets and no alternative technology will be available to restrict the price rise.

Ds Rawat
Manager Management Accounting
Dabur India Limited

The "oil crisis" has been on and off the issue hot list for a little over three decades. While I agree with Jim Heskett's premise that no policy is a policy, we do need to come up with a national long-term policy regarding energy—without it, our flexibility in foreign policy is severely limited and we risk transferring our wealth to more unstable regions of the world.

With the proper incentives and core research (such as our thrust to put a man on the moon forty years ago), there is nothing our technology cannot achieve. I believe we also need to revisit our revulsion toward nuclear power. How is it that every recent capital ship we have built is powered by nuclear energy, and our biggest ships so powered dock in our major cities, such as San Diego, with no outcry? It is because they are safe!

Leadership is sorely lacking in this area. It calls out for a thorough non-partisan review whose deliverable is a practical working plan.

David M. Hirsch
CEO
Vertex Fasteners

If we look at business and economic history, we see that things are generally getting cheaper—be they long-term interest rates, the costs of labor, or even the costs of raw material—due to improved understanding of correlations and other factors. Although there is a serious need for conservation, oil is still really plentiful at the current rate of consumption. The quest for alternate sources of fuel could be funded not by the U.S., but by a country such as China or Japan, which is very much dependent on the import of oil to sustain its industries.

Manish Kulkarni
Business Development Manager
Yash Accounting and E Services

Relatively minor lifestyle changes can lead to huge reductions in energy usage, at least in the U.S. where wasteful habits are confused with essential freedoms. Driving fuel-efficient cars as opposed to huge SUVs, living closer to the workplace, and using public transportation more often are painless ways to conserve without impairing our essential values.

A further step would be to create strong disincentives against sprawling commercial development in outlying and new areas. These necessitate wasteful long-distance commuting and are impossible to serve via public transport. Instead, all commercial development should be encouraged in the older inner cities where mass transit systems already exist and are underutilized. Encouraging denser residential development in mixed residential-commercial villages could also reduce commuting waste.

David Richie
Attorney
Stevens & Lee

This requires incremental thinking in addition to massive initiative thinking. Much of global air business travel, for example, is unnecessary. My colleagues in Europe and the U.S. communicate daily face to face using $200 monitor-top cameras and broadband connections combined with free VOIP software. With global networks, a great deal of transport required to move things like documents is no longer practical. The reduction of paper usage in our lives is becoming dramatic—which in turn leads to changes in both fossil fuel consumption by producers and less logging of forests which serve as carbon sinks.

While these changes are taking place as a result of technology, they are not encouraged or planned, in part because they challenge the viability of major industries (airlines, transportation, and paper). If we sat down and spent our corporate and governing planning time developing many incremental changes in the way we use energy, I believe we'd see noticeable results without the huge battles involved in forcing major changes through (although I also believe those types of difficult battles must also be fought).

Martin Edic
President
January Media Group

The private sector is addressing the challenge. Energy companies are investing tens of billions in developing alternatives to conventional oil such as Gas to Liquids (GTL), oil sands, and heavy crude projects.
Governments in oil-consuming countries now need to do their part. Their tax proceeds actually represent the largest single component of fuel retail prices (up to over 80 percent). These could be reduced for clean fuels such as GTL and for non-conventional sources which expand world reserves, facilitating a smooth transition for society.
As fuel prices are determined by global markets, no country can isolate itself from oil crises. International cooperation is therefore necessary.
Kyoto, imperfect as it may be, exemplifies the path forward. Many European countries are now on target to meet 10 percent of their energy needs from renewable sources through private sector action and adequate government incentives reflecting the externalities involved. However, on the other side of the Atlantic, the largest consumer of energy on the planet still needs to fully recognize the challenges ahead.

Alfonso Leon
Strategy Adviser
Shell International

I hope some innovative companies will offer and market energy harvesting devices (wind, streams, sun, bio-mass, waves) in sizes and price ranges attractive to middle-income people everywhere. If millions of people were adding small amounts of electricity to the grid from millions of locations, it would make the whole system more stable, less loaded on stress areas, and allow people to take more control of and responsibility for the energy situation.

Bob Noah
President
Noah Onboard

I think the third alternative of Kyoto-style protocols to encourage energy independence is the best alternative. However, as long as big oil money lubes the campaign coffers, our government will do everything possible to deny any prediction of running out of cheap oil.

Harry Tucci

Two things come to mind:

So far supply (due to production) and demand have determined the price of oil. Future generations must think it a crime not to have internalized the cost resulting from the limitedness of supply.

It will be interesting to see whether technologically advanced economies will better cope with expensive oil despite their high oil consumption, or whether developing economies will profit as they consume less oil anyway.

Anonymous

As a strong proponent of free market economics, I believe that the markets will regulate consumption as consumers of energy accept the shift from a world of $25 per barrel oil to a future of $40 per barrel oil. As the realization sinks in, users of energy will shift capital investments to energy saving opportunities which provide a greater ROI than other cost reduction projects. Those opportunities exist today, but have been pushed down the list in favor of automation and other labor reduction projects. This will repeat the pattern seen in the oil shocks of the 1970s, where rapidly rising prices spurred a combination of conservation efforts and exploration and development of previously uneconomical oil reserves.

Given the reality that oil and gas are finite nonrenewable resources, the ideal approach to this problem would also incorporate incentives to accelerate the development of alternative energy sources. Without a purposeful, directed approach to creating incentives today for the energy supplies of tomorrow, it is likely that these new technologies would not be developed until after they are truly needed, leaving the world with a serious gap in energy supplies.

John Friedery
COO, N. American Packaging
Ball Corporation

I feel that George W. Bush as the current President of the United States is doing everything he can to thwart efforts to move away from the dependency on oil. The government should put tax incentives in place for attempts to change over to wind, solar, and other alternatives just as was done in the '70s, and to support further development of alternatives to bring them to market at affordable prices.

Anonymous

It is time businesses all over the world changed their mindset while investing in energy. Can multiple energy sources reduce risk to a business? For example, ethanol produced from plant sources can be mixed with gasoline. Not every engine needs to run on gasoline—why not diesel or liquefied natural gas? Even if a new fuel results in lower engine performance, could it be cheaper in the long run? There are large parts of the globe where wind power and solar energy are plentiful and free of cost. Can we use these as the primary source of electric power at such locations? Now that communication is wireless, we may avoid investments on hundreds of miles of power and communication lines!

The U.S., with 5 percent of the world's population, consumes over 20 percent of the world's oil. To secure its oil supplies, it also spends as much on the military as the next ten developed countries put together. Isn't it time for U.S. policy makers to focus more on reducing oil usage and saving the environment? Isn't it time for U.S. companies to lead the world in pioneering alternate sources of energy? It would be a pity if they decide to wait and learn from Europe and Asia.

K. R. Kashyap
Deputy General Manager
IBM Global Services India

What is surprising is how little effort we see, beyond that of a few alternative-energy cars, to build a less energy-dependent society in the U.S. With so much income currently flowing into housing in the U.S., why is there so little mainstream thinking—and product offerings—that will make these homes sustainable ten or fifteen years in the future? Will our dual forty-gallon hot water heaters, eight-head showers, and four-person Jacuzzi baths be ripped out in a dozen years to install Japanese-style baths and solar heating systems? With Americans' appetite for the new and fear of the future (think bomb shelters), it would seem an easy sell.

Anonymous

The thrust of current U.S. energy policy (reliance on petroleum), appears both suspect (written in secret by oil executives and an oil-centric administration) and short-sighted: Would Harvard Business Review recommend launching a new business based on a dwindling commodity? I think not.

Enlightened government should commit to a radical reform of energy production and consumption on no less a scale than that which we mustered for the space program in the '60s: 66 percent reduction in use of petroleum fuels by 2015, 99 percent by 2025.

This is a great time to leap into a growth industry (with perceptive political and technical leadership), and an opportunity to do something nice for the globe. We developed the petroleum industry (though now our raw materials are under someone else's feet); we can develop the clean-fuel market just as well.

We led the world into space. We can—and should—also lead the world in preserving our own backyards via more enlightened and forward-thinking energy policies, both political and technical.

Donald R. (Chip) Levy
Principal
The Rochelle Organization, Inc.

I think the oil shock will come much more rapidly than Professor Heskett predicts. So fast, in fact, that markets will not be able to balance out supply and demand.

Anonymous

The question of switching to an alternative oil source is framed as a Boolean variable: In other words, this change will be either do this or that. The fact that we move toward another source does not necessarily mean that we will be put at a competitive disadvantage. Why couldn't other sources be a competitive advantage?

Our dependence on Middle Eastern oil or our refusal to have it jeopardized has already cost us over $100 billion this year.

Could we please begin the effort to minimize our allegiance to crude before our standard of living is severely compromised by our failure to do so?

Richard Leatherman

I think the U.S. should take the lead. Using available dollars now to position for the inevitable is something that anyone with common sense should see. It does not have to result in a competitive disadvantage, and will provide a competitive advantage later. Certainly America should be aware that so much oil is used in agriculture, and yet in a few years the U.S. will still be driving SUVs and people will starve in poor countries.

Thank you for raising the issue. Public awareness will push the big companies and politicians because a lot of people will make the decision to be energy-conservative before our leaders do.

Anonymous

I am an American who has lived abroad on and off since 1972 and in the U.K. since 1989, where gasoline (petrol) costs are three to five times U.S. prices, it amazes me that the [American] government has put the profitability of automobile companies ahead of responsible energy management for future generations. It makes no sense to me to allow SUVs and ever-greater gas-guzzling automobiles when safe, fuel-efficient alternatives are possible.

Maria Kacandes-Kamil

From the 1970s until today, the U.S. has indeed increased its energy efficiency, but it has relaxed in other areas. The tax system can be an excellent method to align consumers to other alternatives.

The U.S. must let go of its past in oil, when it was among lead world exporters in the early 20th century, and search for new frontiers in the energy matrix.

Anonymous

In New Zealand we have had various energy crises over the last few years. They were mostly to do with electricity. The major response from government has been to urge the people to save power by turning things off. Older people have paid dearly for doing so. Some have died because they turned their heating off. Yet for some years there have been advisors urging the government to mandate the installation of solar panels on private dwellings to ensure there is never a shortage of electricity. Various schemes have been proposed, yet no action has been taken by government.

It seems that it is the same with respect to the coming oil peak. No one in government is willing to even discuss it, let alone admit it is an issue. It seems that this is the same in countries around the world.

If the peoples of the world are to prepare themselves in any way for a much-changed world economy, it looks like the only way to do this is by popular action.

A sobering thought is that modern agriculture is wholly reliant on oil to produce the quantities of food it does today. Most of the pesticides are oil-based, the spraying is reliant on oil, the harvesting is reliant on oil, and then there is distribution, refrigeration, and on and on.

This truly has the potential to change the world in ways we never imagined. The power balance could shift markedly and nations we currently sneer at because they are backwards agriculturally—and perhaps even subsistence farming nations—will be the ones holding the power. It may even happen that the nations that are currently powerful will move to pre-empt this power shift and we may enter into years of considerable conflict.

Still … It is increasingly obvious that one of the most critical shortages we may yet face in the future is a chronic shortage of potable water. We need that more than oil to grow our food. So where are we with initiatives to arrest and reverse the global warming trend? Perhaps running out of oil isn't such a bad thing after all?

One thing is certain, though, and that is that in the end nature will win.

Remco de Ket
Marketing Coordinator
Presbyterian Support Central

The alternative sources of energy appear lucrative at this point of time but to really bank on them will require huge investments, which only the energy majors can afford. The perception regarding the future outlook is positive. Also, emerging economies like China are contributing to the global energy demand and that is not going to slow in the near future.